An investigation into the impact of human capital on the performance of small and micro manufacturing ventures (SMMVs) in Tanzania : 1997- 2001.

Abstract

Small, Micro, and Medium Enterprises (SMMEs) and their related entrepreneurship are the focus of considerable policy and research interest as they contribute to mobilization of resources, job creation , and poverty alleviation , the total effect of which is GDP growth, economic development, and other socioeconomic benefits. Emerging research in developing countries seems to further confirm that, despite the problems and limitations facing the SMME sector, it is currently the most effective job creator, when many large firms are downsizing and retrenching labour. This study takes a closer look at the impact of human capital on the performance of Tanzanian Small and Micro Manufacturing Ventures (SMMVs) over the period 1997 - 2001. It involves a random sample of 200 ventures from 18 regions , grouped into the five zones of Mainland Tanzania. Of the surveyed entrepreneurs, 20% had tertiary education, 58% were exposed to some training , 54% had some occupational experience, and 60% had high need achievement (nAch) levels. With regard to employee human capital, 67% of the ventures had employees who attended some kind of training between 1997 and 2001, 49% had employees with less than 7 mean-years of schooling and 51% had employees with more than 7 mean years of schooling. Employee experience in their current firm varied: 50.5% of ventures had mean-employee experience between 1 and 6.25 years, while 49.5% had between 6.3 and 30 years. Examining the influence of employee and entrepreneur human capital on Tanzanian SMMVs gives the following main findings: • Entrepreneur need achievement (nAch) level is positively correlated with business performance, but its impact on the number ofjobs created, sales, and profit does not seem to be significant, other things remaining equal. • Entrepreneur education appears to have a significant impact on performance in terms of the number ofjobs created and sales. • Entrepreneur training appears to impact positively on the firm's sales and profit. • Employee expenence III the current firm appears to have a significant influence on performance in terms of sales and levels of profit. • Employee education and training appear to have significant and positive impacts on sales and profit. Further, business conduct was considered in terms of recruitment practice, training of employees, keeping of business records, and access to bank financing. The findings show that: • SMMVs with educated and trained entrepreneurs are better in all the conduct attributes tested in the study, that is, recruiting an educated workforce, keeping records, access to bank financing, and owning of another business. • Ventures with trained and educated employees are likely to keep more business records, and access more finance from banks than their untrained and uneducated counterparts. • It has also been found that the capacity to generate jobs between different enterprises is not equal. Edible food processing is likely to generate more jobs than other business activities in the study. Lastly, by regressmg a Cobb-Douglas production function on the data from Tanzanian SMMVs, physical capital, human capital of entrepreneur, and of labour are found to be significant predictors of output performance.